In California 54% of the People voted to have 1% of the People pay $6 Billion more in Annual Taxes

Posted by PITHOCRATES - November 10th, 2012

Week in Review

The Left is applauding California for voting to raise taxes on the rich.  Saying that California is choosing to be responsible.  While the federal government continually chooses to be irresponsible.  But is this democracy?  Or mob rule?  We can find the answer to these questions easily by understanding what this vote really did (see Californians approve massive tax hike on the wealthy by Tami Luhby posted 11/7/2012 on CNN Money).

Californians approved a measure Tuesday that raises taxes on the wealthy and hikes the state sales tax. It is expected to bring in $6 billion a year, on average, over five years.

Proposition 30, which Governor Jerry Brown has lobbied heavily for, captured 54% of the vote. Its approval prevents massive budget cuts to the state’s public schools and universities…

The wealthiest 1% of Californians — those with annual incomes of $533,000 or more — will shoulder nearly 79% of the tax increase, according to the California Budget Project, a research group that endorsed the proposition. They will see their taxes rise by 1.1% of their income, while the bottom four-fifths of the state’s residents will see an increase of between 0.1% and 0.2% of their incomes…

The measure is expected to raise $8.5 billion in new revenue, according to the Department of Finance. Some $2.9 billion will go to schools, while the remaining $5.6 billion can go toward closing budget gaps.

But the Legislative Analyst’s Office warns that the measure depends heavily on the income of the wealthiest residents, which is volatile and difficult to predict.

So a mob of 54% of the electorate voted to have 1% of the population pay more in taxes.  Who are already paying the lion’s share of taxes.  Problem solved.  Or so they think.  For will these rich people stay in California where a mob can shake them down to pay for more free stuff for those who don’t pay taxes?

Oh, it’s easy to get the mob to increase taxes on others.  Especially if it’s for education.  So students can go to college and get their degrees in film and gender studies.  Degrees that won’t help them get high paying jobs.  But will leave them with more student loan debt.  So why do it?  Because if they didn’t subsidize education more in California how else would they pay for those high university pay and benefits packages?  Which is what is really driving up the cost of education.  For what is education but some books and a lot of people on a university campus?  There is no manufacturing equipment.  No raw material costs.  Education is nothing but overhead.  And an expensive overhead at that.  Just look at the housing the senior professors and administrators live in.  And the lives they enjoy.  They’re the same kind of lives that the so-called 99% demonize business owners and Wall Street types for living.  But because they are on a university campus they get a pass.

A lot of Hollywood moving-making business is leaving California.  Look at the closing titles of some current movies and you will see a lot of them are filmed on location.  Where they can escape the high cost of movie-making in Hollywood, California.  And if the movie-makers are fleeing the high cost of California it would be foolish to think that the richest 1% will not find more agreeable tax locales to invest their money.  And to live.  So don’t count on that additional $6 billion a year yet California.  Because these new tax rates will probably bring in a whole lot less revenue than that.  As increased tax rates always do.

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Keynesian Monetary Policy keeps Interest Rates low and Bankrupts Pension Funds

Posted by PITHOCRATES - November 10th, 2012

Week in Review

For a long time Keynesians in government said borrowing money was not a big deal for governments.  At first it was people owing money to themselves.  No big deal, right?  As the people would never call those loans in.  Then it was foreign investors buying a nation’s sovereign debt.  No big deal, right?  As long as the additional cost of borrowing didn’t increase dramatically for the next issue of debt what was the harm?  Well, as long as you didn’t live off of your savings or a pension it was hard to see the harm.  But if you did live on a fixed interest income or a pension you saw a HUGE amount of harm (see British company pension deficits soar past 230 billion pounds – report by Sarah Mortimer posted 11/7/2012 on Reuters).

“Things have got much worse for defined benefit (DB) final salary pensions,” said Mel Duffield, head of research at the National Association of Pension Funds (NAPF).

“Our fear is that the firms might decide to close these pensions altogether, further undermining the UK’s ability to save for its old age,” Duffield said…

Repeated rounds of central bank easing have contributed to a sharp drop in the yield on British government gilts – a staple investment for pension funds – making it more expensive for funds to match income to liabilities unless they add riskier, higher-yielding assets to portfolios.

Keynesians are all for taxing, borrowing, printing and spending.  For they think there is no harm that government spending can’t overcome.  But there is.  First of all when the government borrows money it pulls investment capital out of the private economy.  Raising the cost of borrowing for business.  But it’s even worse when the government starts printing money to lower the interest rates even further.  Because retirees live off of the interest of their savings.  As do pension plans.  When the government keeps interest rates artificially low to ‘stimulate economic activity’ it neither stimulates economic activity nor provides a livable income for retirees.  As the resulting price inflation eats up their savings at an accelerated pace.

This is the cost of excessive government spending.  Passing the bill for today’s spending onto future generations.  And destroying the retirement of today’s retirees.  And future retirees.  As their pension funds become so underfunded that business can no longer maintain them.  And abandon them.  Having the state pick up the cost of these retirees.  Guaranteeing these retirees will get even less in retirement as the government struggles to pay these pensions in an expanding budget amidst falling tax revenues thanks to an aging population.  And if you want to get an idea of just how this can get just take a look at Greece.

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Obamacare will likely Include a Liverpool Care Pathway type of Death Panel

Posted by PITHOCRATES - November 10th, 2012

Week in Review

There are no death panels in the NHS.  At least, by name.  Though some would say the Liverpool Care Pathway is a death panel (see NHS constitution reform to include new end-of-life care commitments posted 11/4/2012 in the guardian).

New commitments on end-of-life care and single-sex wards are set to be included in the NHS constitution under proposals unveiled on Monday…

Rules on involving patients and families in treatment decisions are being strengthened following an outcry over secretive use of the Liverpool Care Pathway which involves withdrawal of fluids and food…

Imelda Redmond, director of policy and public affairs at Marie Curie, said: “The Liverpool Care Pathway has enabled thousands of people to experience dignified care in the last hours and days of life. It was developed to spread the hospice model of end of life care into hospitals and other healthcare settings.

“We have become increasingly concerned about the damaging media coverage which reports negative experiences of people in hospital and the end of life. That is why we are calling for the next independent national audit to be brought forward so that we can identify as soon as possible where these failings are taking place.

One thing the British have learned is that sick people who don’t have the decency to die quickly cost a lot of money.  And these sick people who refuse to die quickly consume a lot of NHS resources.  Resources that they are no longer paying for as they have long since left the workforce.  So some family members have had their loved ones placed on the Liverpool Care Pathway even though some questioned why later?  Was the decision made in the best interests of the patient consuming all of those health care resources?  Or was the decision made in the best interests of the health service trying to make those limited health care resources stretch as far as possible?

They don’t call it a death panel.  But when it appears they’re choosing to let some people die for economic reasons (to stretch those limited health care resources as far as possible) one can’t help but think of the Liverpool Care Pathway as a death panel.  Hence the revision of the NHS constitution.

Obamacare doesn’t include any death panels.  By name.  But it includes a lot of ‘as the authority shall determine’.  Which means some bureaucrat has the last say on spending decisions.  And if those spending decisions involve the withdrawal of fluids and food it is a life and death decision.  Exactly the kind of decision a death panel will make.

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Without a Bill Clinton the Bursting of the Canadian Housing Bubble will be less Painful than in the US

Posted by PITHOCRATES - November 10th, 2012

Week in Review

The subprime mortgage crisis caused the Great Recession.  And bad government policy caused the subprime mortgage policy.  First with artificially low interest rates to encourage everyone to borrow money and take on enormous amounts of debt.  Then the Clinton administration took it up a notch.  By charging lenders with discrimination in their lending practices.  And if they didn’t find a away to qualify the unqualified for mortgages they would soon find themselves out of the mortgage business.  So they came up with subprime lending.  Adjustable rate mortgages (ARM).  No documentation mortgages.  Anything to get the government off of their backs.  And the government was so pleased with what they saw they started to buy (and/or guarantee) those toxic mortgages with their Government Sponsored Enterprises Fannie Mae and Freddie Mac.  Clearing those toxic mortgages from the lenders balance sheet by unloading them onto unsuspecting investors.  Clearing the way for even more toxic subprime lending.  The government was pleased.  And the bankers were making money with bad lending practices.  Something they normally would have avoided because it is very risky.  But when the government was transferring that risk to the taxpayer what did they have to lose?

Governments like a hot real estate market.  Because housing sales drives so much economic activity.  Because people put a lot of stuff into those houses.  Which is why governments are always quick to use their monetary authority to lower interest rates.  Which is what they did in the US.  Cheap money to borrow.  Lax lending practices thanks to the Clinton administration.  Creating a housing boom.  And a housing bubble.  It was a perfect storm brewing.  The only thing that it needed was a raise in the interest rates.  Which came.  Causing the subprime mortgage crisis as those ARMS reset at higher interest rates.  Leading to a wave of subprime mortgage defaults.  And the Great Recession.  Which raced around the world thanks to those toxic mortgages Fannie Mae and Freddie Mac unloaded on unsuspecting investors.

Canada did not suffer as much from the Great Recession.  Because they did not pressure their lenders to qualify the unqualified like Bill Clinton did in the US.  But they still used their monetary authority to keep interest rates artificially low.  So while they escaped the great damage the Americans suffered in their subprime mortgage they still have a housing bubble.  And it looks like it may be time for it to burst (see Analysis: Canada braces as housing slowdown takes hold by Andrea Hopkins posted 11/10/2012 on Reuters).

Long convinced the country’s housing boom would never end in a crash, Canadians have watched this autumn as a sharp slowdown in real estate spreads across the country, leaving would-be home buyers hopeful and sellers scared…

Signs are everywhere that Canada’s long run-up in house prices is over, hit by a combination of tighter mortgage lending rules and growing consumer reluctance to take on more debt. Sales of existing homes are down steeply, with condo sales hit especially hard, and some long-booming prices have started to fall…

Canadian households hold more debt than American families did before the U.S. housing bubble burst, which has led the government to tighten mortgage lending rules four times in four years…

Tal believes slower sales activity will be followed by falling prices in many cities. But he says Canadian lending standards have been higher, and borrowers more cautious, than in the United States before its crash, which will prevent large-scale mortgage defaults and plunging prices.

Mindful of what happened in the United States, the Canadian government has tightened mortgage rules to prevent home buyers from taking on too much debt. While interest rates are low and expected to stay low into 2013, the fear is that eventual rate hikes will drive borrowers out of their homes or into bankruptcy…

The last round of mortgage rule changes took effect in July, forcing home buyers to cut back on their budget and pushing many prospective first-time buyers out of the market entirely.

The Canadians may escape the damage the US suffered as Bill Clinton was an American and not a Canadian.  So they only have to suffer the effects of bad monetary policy.  Not the effects of government enforced bad lending practices.  So housing prices will fall in Canada.  And there will probably be a recession to correct those inflated real estate prices.  But housing prices probably will not fall as far as they did in the US.  For the Canadians were more responsible with their irresponsible monetary policy than the Americans were.

The lesson here is that when markets determine interest rates housing bubbles are smaller and recessions are less painful.  If you don’t believe that just ask an American with an underwater mortgage.

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Australia taxes their Rich People far more than the US but it’s still Not Enough to Pay for their Welfare State

Posted by PITHOCRATES - November 10th, 2012

Week in Review

With President Obama’s reelection some are saying it is a mandate to raise taxes on the rich.  Because he said all along that he wanted to tax the rich more.  And he won reelection.  Ergo, ipso facto, mandate.  But we should be careful about raising taxes.  For it seems our government is always raising taxes.  Or demanding that we need to raise taxes.  So the question is where does all this tax-raising end?  A new carbon tax?  A GST?  Well, Australia has both.  Yet they’re still talking about raising taxes (see States to eye online shopping for GST boost – Sydney Morning Herald posted 11/10/2012 on Canberra Hub).

State treasurers will this week consider calls to cut the GST-free threshold for goods bought from overseas online stores, in an attempt to bolster flagging revenues from the tax.

Under current rules, products costing less than $1000 that are privately purchased from overseas are not subject to GST, sparking complaints domestic retailers face an uneven playing field.

State governments – which receive the revenue raised by the GST – also miss out on about $600 million a year due to the threshold, and this foregone revenue is projected to rise as online shopping takes off…

NSW Treasurer Mike Baird, who wants the GST-free threshold to $30, will raise the issue as a “key consideration” at the meeting, a spokeswoman for Mr Baird said…

The simplest way to resolve the situation was to require foreign retailers selling into Australia to charge GST, he said.

Mr Greiner has also called for a debate on raising the GST’s rate from 10 per cent or broadening its base, but this was ruled out on Monday by the Treasurer, Wayne Swan.

Australia’s top marginal tax rate is 45% on incomes over $180,001 ($187,021 US).  They tax companies at 30%.  And capital gains, after some discounting and adjustments, they tax as income.  Whereas in the US the top marginal tax rate is 35% on incomes over $388,350.  The corporate tax rate is 35%.  And a capital gains tax of 15%.  Apart from the higher corporate tax rate, the Australians tax individuals far higher in Australia than the US taxes their individuals.  And yet it’s still not enough.

On top of these higher tax rates are additional taxes.  Like the carbon tax.  And the goods and service tax (GST).  Which they are currently discussing ways of increasing to generate more tax revenue.  There’s an important lesson to learn here.  No matter how much government taxes their people it will never be enough.  For the unsustainable rising costs of a welfare state for an aging population will always exceed the tax revenue from an aging population.  Higher tax rates and new taxes are inevitable.  And for those states with national health care, cost cutting, longer wait times and service rationing are also inevitable.  Because however much they tax it will never be enough.

This is the future in America.  Because we’ve just added Obamacare even though we’re already suffering record budget deficits under the Obama administration.  And 4 years of anemic economic growth.  Which will only become more anemic with higher tax rates.  And new taxes.

The only way a state will ever pay for its welfare state is if they have a population that is getting younger such that there are always more people entering the workforce than leaving it.  Or by reducing the size of the welfare state to a size the current population growth rate can fund.  So the United States has two paths to solvency.  Start having a heck of a lot babies.  Or start slashing state benefits.  Or both.  Which would be a third option.  But the current option, increasing state spending with a declining birthrate, will not work.  No matter how much you tax rich people.

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